Is Transformation of The Auto Industry More Than Just Digitalization?

The auto industry is not going through just a single transformation but is undergoing three transformations all rolling into one big revolution. Every industry goes through a major transformation, some over 5 years, some over 10 and some even over a 100. Today, there are over a billion cars on the road leaving people frustrated with long traffic jams, peaking air pollution levels and increasing gas prices. The automotive industry evolved through a similar course when people started complaining about horse carriages that were replaced by cars a hundred years ago. So, what is going to replace the cars we have today? Connected cars? Sure. Self-driving cars? Of course. But the answer is much more complicated than that. Let us look at the three big transformations that are driving the revolution of the auto industry: (1) The Software-Defined Car, (2) The Electrification of Vehicles and, (3) The Sharing Economy.

The Era of The Software-Defined Car

In this digital age, cars are evolving to be digital too, meaning that they are incorporating millions of lines of software code taking over the intelligence from the hardware components. Most of us listen to music on our smartphones. We also listen to music in our cars by connecting our smartphones through Bluetooth or USB. Now we also have Android Auto and Apple CarPlay that each provides a limited version of your phone’s system that runs on your car’s infotainment system. They allow drivers and passengers to control music, navigate and communicate by way of voice commands and the car’s manual controls. These new applications are redefining the vehicles’ infotainment systems making them much easier to use. In the near future, cars will not only be connected to the cloud, they will be connected to each other, to the road infrastructure and to other smart devices. With rapid developments in the Internet of Things (IoT), Big Data and Artificial Intelligence, cars have become smart machines with the ability to continuously and quickly generate, analyze and disseminate data.

Morgan Stanley estimates that, in the future, the software and applications layers will collectively account for 60% of the value of a self-driving car. The growing number of sensors in a car and the massive amount of in-vehicle data being generated per hour are driving the development of autonomous driving platforms and data marketplaces in the cloud. From driving assist features to being able to access your favorite apps in the cloud and to keeping your car up-to-date with the latest security and functionality, cars are going to be more than just a machine that takes you from point A to point B. The future brings with it new opportunities to not only reduce operational costs but also establish new post-sales revenue streams. Consumers will prioritize in-vehicle experiences over the hardware components that go into the vehicle. We live in a software-defined world now; the software-defined car is just a part of it, the challenge lies in making it functional, secure and safe.

The Transition to Electric Vehicles

The last couple of years have been marked as the warmest years on record. The rise in temperature is due to global warming, caused majorly by air pollution. China and some of the mid-eastern countries have been reported to have the highest levels of air pollution in the world, causing serious health concerns. The trend of global sustainable efforts, initiated by the governments themselves, is enabling the world to shift from fossil fuels to renewable sources of energy. Countries like Norway, Germany, India, France, UK, China and Netherlands have already announced that fossil fuel based cars will be banned by 2030. China had about 99% of the 385,000 electric buses on the roads worldwide in 2017, accounting for 17% of the country’s entire fleet. Every 5 weeks, Chinese cities add 9,500 of the zero-emissions transporters – the equivalent of London’s entire working fleet, according to Bloomberg New Energy Finance. Bloomberg also reported that major cities around the world are slowly following China’s lead: Paris, London, Mexico City and Los Angeles are among 13 municipalities committed to buying only zero-emission buses by 2025.

Almost every major automaker is planning to make electric cars to keep in line with government regulations. While China is already the biggest market for electric and self-driving cars, companies around the globe are starting to realize the trend of developing autonomous driving technology for electric vehicles. The rise in gas prices, stringent government regulations and the substantial development of electric and hybrid cars are paving the road to an all-electric future. These cars will become much cheaper, much more efficient, will facilitate the development of charging stations across major freeways and also spearhead automated drive technology. However, if we only rely on coal to produce electricity, the overall air pollution will remain the same. Instead, we should start looking at renewable sources of energy such as solar energy and wind energy to reduce global warming.

The Rise of The Sharing Economy

Social media has connected people in more ways than one. Whether you are looking for a product review or a recommendation for a restaurant, all you need to do is open an app or browse online. There are 150 million Airbnb users who connect with each other to share accommodation. Zipcar, the car-sharing company, reported that it took 400,000 vehicles off the roads through its one million customers. Ride-hailing services like Uber and Lyft have had explosive growth due to their ability to facilitate ride shares which in turn is bringing down the cost of convenient transportation. The Internet has fueled the growth of the sharing economy by easing the ways that people can connect with each other. Today, all you need is a bunch of apps installed on a smartphone to get through most of the daily activities, whether it is traveling to work, going on your next vacation, ordering food or scheduling grocery delivery.

Car-sharing will emerge as a lifeline to urban populations that face growing air pollution and traffic congestion. The need for businesses to get quickly and conveniently from one location to another will stimulate creative potential. In large cities, ridesharing will appeal to those who do not want to be burdened with car ownership or parking issues. In the suburbs, car-sharing will impact the communities that do not have access to proper public transportation systems. Traditional taxis are being replaced by human-driven ride-hailed cars and, in the future, these will be replaced by self-driven robo-taxis. Ride-hailing companies plan to turn car owners to car users by introducing Mobility-as-a-Service (MaaS) to its customers.

The futuristic Sci-Fi movies that have supercars running on long winding tall-pillared roads and other cars flying around do not seem to be that futuristic anymore. With a global focus on the automotive industry and the rapid advancement in technology, the revolution is not coming, it is already here. We need to think about how we should align our business strategies and stay ahead of the game. With the rise of the internet, the newspaper industry plunged, forcing several newspapers to file for bankruptcy, until it finally managed to go digital and compete with several online blogs and magazines that had already established themselves. If we do not embrace the disruptive changes that come our way, we run the risk of becoming obsolete as well.

As the auto industry is changed by technological and economic currents, OEMs and Tier-1 manufacturers will need to partner with technological specialists to thrive in the era of the software defined car. Movimento’s expertise is rooted in our background as an automotive company. This has allowed us to create the technological platform that underpins the future of the software driven and self-driven car. Connect with us today to learn more about how we can work together.